This Canadian Dividend Stock Is Down 13% and Still a Forever Buy

Shares of Loblaw (TSX:L) might be a prime buy after the latest unwarranted correction as inflation remains an issue.

Key Points
  • Loblaw is down about 13% from its highs, and the pullback looks like a chance to buy a proven long-term winner at a fair price.
  • With shoppers trading down and value mattering more in 2026, Loblaw’s low-cost brands and store expansion could keep it growing.

Shares of Loblaw (TSX: L) are shaping up to be a great pick-up now that the stock’s stuck in a correction, down close to 13% from its all-time highs hit back in February of this year. Undoubtedly, there aren’t all that many stocks that I’d be willing to hang onto for the long haul (not forever, but perhaps more than a decade).

Loblaw is one of the names that has appeared to be a great “trim” candidate at almost every step of the way over these past five years. But if you booked profits, odds are you missed out on more of the same from the very-efficient grocery juggernaut. Indeed, it makes sense to let proven winners, such as Loblaw, continue to win, even if the price of admission starts to get steep and it becomes a bit more tempting to ring that register while there are still gains to be had.

At a dime over $60 per share, shares of L are now up more than 240% in the past five years. That’s more than triple from a grocery stock. Who knew that a defensive play would land one such explosive gain? And while the stock isn’t as cheap as it used to be, I think there’s still a strong case for buying at today’s multiples, which I view as more or less fair.

frustrated shopper at grocery store

Source: Getty Images

As long as value wins in this environment, Loblaw wins

Food inflation, energy inflation, and stagnant wages have delivered a one-two hit to the consumer. We’ve witnessed a lot of “trading down” across various consumer businesses. Whether we’re talking about moving from fast-food and diners to eating at home, or ditching pricey, proven brands for the generic alternative, Canadians have shifted gears into money-saving mode. And my guess is that they’re going to get more aggressive with the savings in 2026. With the blockage in the Strait of Hormuz, things could become even more expensive.

Loblaw hasn’t been granted immunity from the higher prices of food. It has become really hard for firms to “eat” the price increases, but firms, like Loblaw, recognize the opportunity to make the most of their ability to perform in climates where margins become razor-thin. It’s hard to compete against the likes of a No Frills when it comes to a Canadian grocery.

And with some of the thinnest margins already on the scene, Loblaw has simply been conducting business as usual while enjoying the traffic that may have traded down from a pricier grocery store that’s perhaps been a bit too aggressive with its price increases. It’s hard to compete in grocery retailing these days unless you’ve got a stunning value proposition.

Loblaw fights back for lower prices

These days, nothing quite matters more than value for money. And with Loblaw reportedly helping Canadian consumers “fight back” against food price inflation with suppliers, I do think recent favourable trends only stand to get stronger in a year when consumers could stay on the ropes for a while longer.

With strong negotiating power and a reputation as one of the cheapest places to shop for groceries, I’m thinking that Loblaw has a golden opportunity to really make the most of its low-cost store expansion plan. If anything, the expansion isn’t aggressive enough, given how badly shoppers need good deals at the grocery aisle.

As things get more painful for our wallets, it’s firms like Loblaw that will need to go the extra mile. Apart from leverage in negotiating with suppliers, I’d look for increased use of AI behind the scenes to unearth additional savings over the longer run. Of course, AI won’t magically cause more savings overnight.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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